Let the free market eat the rich!

This essay is NOT by me: it was written by Jeremy Weiland, currently blogging at Social Memory Complex, around 3 years ago, and was linked by William Gillis in a post at Human Iterations that I think captures my view of how property rights are more appropriately defended as a second order good representing the Goodwill/Reputation/Credit of the claimant. Unfortunately, Gillis’ link is to an old site of Weiland’s that is now defunct, and the latter’s essay from 2007 is simply too good to lose, so I’ve copied and pasted my archived copy of it here. I have a few quibbles with Weiland on details, but that can wait for another day. The rest of this post is his essay:

Let the free market eat the rich!

by Jeremy Weiland

Anarchy and Distribution

On the LeftLibertarian2 Yahoo! group, we’ve been experiencing some disagreements about the likely consequences of an anarchist society. There are so many aspects of our current culture, economy, infrastructure, etc. that have been distorted by privilege. Civil society has become so confused with the institution of the State that it’s hard to extricate one from the other. That’s why distinguishing the competing visions of different anarchists usually comes down to predictions of what the likely ends of anarchy are, not the broad means.

A long running debate among the anarchists, especially between individualist and more communist type, centers around the justice of wealth disparities. Certainly the existence of the State serves to enrich particular interests at the expense of others, but in anarchy would the rich dominate society – just as they do with the State? Even if we could immediately switch off the institutions that forcibly manipulate society, there is danger that the legacy of privilege and accumulated wealth could persist for some time, distorting markets and continuing the frustrate the balance of power between individuals.

Individualist anarchists have had a variety of responses to the problems of historical property and wealth distribution. Even anarcho-capitalists who see large scale social coordination as the natural direction of society have different views, such as Hans Hermann Hoppe’s theory of a natural elite and Murray Rothbard’s support of syndicalist takeover of State-supported corporations. On the other side of the coin, left-leaning individualists also entertain a variety of approaches: from the agorist trust of entrepreneurship as a leveling force to mutualists such as Benjamin Tucker and Kevin Carson speculating about the possible need for short term State sponsored redistribution and reform.

The key question for anarchists is always and ever what will the the stateless society look like? Our constant search for the answer continually motivates and refines our strategies for getting there. But sometimes I think anarchists focus on details too much and get bogged down in achieving their vision of this society (I’ve written about this before). It’s easy to forget that anarchy is – anarchy becomes defined by – however humans naturally interact, not how we wish they would interact. In other words, this is an empirical matter, about which we waste time arguing over. At the risk of posing yet another prescription for anarchists, however, I’ll simply suggest that it is in human nature we find the kernel of proportionality and balance that could inform this matter.

The Modern Corporation

There are two basic entities among which wealth can be aggregated: corporations and personal estates. Both of these entities rely first and foremost on the stability and security of the social order, making politics necessary. The purpose of this essay is to demonstrate how large scale aggregations of wealth require an outside stabilizing force and defensive agency to maintain, and how in a free, dynamic market there are entropies that move imbalances back to equilibrium. There is also a proposed basis for a relative equilibrium among people once privileges are abolished. This investigation will identify two main beneficiaries of state intervention: large modern corporations and large personal estates.

The modern corporation is a legal entity chartered by the State. Corporations benefit from an arsenal of privileges, such as personhood and limited liability, which serve to set the rules of the market on terms favorable to corporate investors and managers. The trend has always been to correct any perceived problems with big business by large, top-down regulation, rather than to reexamine the quite blatant decisions made long ago about how to treat these entities.

For instance, it is conceivable that a firm could argue effectively in front of a judge for certain of the rights of being a human citizen on a case by case basis, but current established law mandates a clumsy legal equivalence between living human beings and abstract organizations of people and assets (which is historically dubious). The benefit to big business, of course, is to regularize and simply business legal proceedings, setting aside the legal advantages this gives corporations over individual humans. The ability to exercise first and fourth amendment rights as if the firm were a human being results in corporate campaign contributions and protection from random inspections, for instance – very different from the way those rights were intended to be invoked by the founders.

Obviously, limited liability is a fiat subsidy to corporate investors, the value of which is vast when one calculates the total capitalized value of the stock market, for instance. But the utility of the subsidy goes even further, because it allows investors to hire managers who have a legal mandate to pursue profits while maintaining a distance from the way profits are pursued. Highly capitalized firms, who by their sheer size wield far more potential for harm than any single individual, essentially obfuscate the way decisions are made so that if third parties to the stockholder-manager relationship are harmed, stockholders cannot lose more than their investment.

The imbalance of responsibility this enables cannot be underestimated, for it goes to the very heart of corporate economic behavior. What would be different about business, socioeconomics, and politics if stockholders knew that their managers’ activities would leave them fully liable for the actions of the corporation and could lose their savings, their car, their house? Limited liability and corporate personhood make possible a way of doing business in a far riskier way than normal people would.

In a free market, corporations would not be able to rely on the State for their very existence. Any ability they’d have to do business as an entity would come from the consent and cooperation of the market – customers, suppliers, contractors, service providers, banks, but most importantly management. Without an SEC and intrusive reporting requirements, oversight, and regulatory enforcement, it would be very hard to prevent the larger and more complex firms from being subjected to outright fraud in a variety of ways. The legal relationships that govern so much capital finance and business activity would become much more ad hoc and less predictable. Risk would skyrocket, which is a much more favorable environment for the small-time entrepreneur than the big, clumsy, bureaucratic corporation.

Think about the huge stabilizing effect of the federal government for making big business anything less than a total ripoff for investors right from the start. Think about the ways government regulation rationalizes markets to make them safe for large industries to exploit and oligopolize. Think about how much leeway the modern CEO is afforded to run the business in pursuit of short term gain, with stockholders often supporting them even as they engage in questionable activities. Enron’s reckless destruction of shareholder value is hardly remarkable, when you think about the level of complexity in which they schemed and strategized – the fact that it doesn’t happen more often is (until you check your tax bill and realize you’re subsidizing the stability and security of others’ investments!).

The Personal Estate

Obviously the most direct way in which people benefit from the institutional character of our statist society is through direct ownership. While there are few (if any) rich people who aren’t heavily and diversely invested in corporate capitalism and share in its redistribution of wealth and special favors from the government, there are additional State provisions to benefit individuals. Unlike corporate privileges, those which govern the stability of personal estates arguably serve the interests of more modest individuals, especially the middle class. However, I intend to show that the rich benefit far more from fiat stability and socialized security than the rest of us.

The biggest subsidy enjoyed by the wealthy lies in government regulation of finance. By regulating banking through inspections, audits, and the centralized monetary maintenance practiced by the Federal Reserve System, depositors enjoy a level of stability in the system that is quite unrivaled in history. Of course, regular joes like you and I prefer our current experience to frequent crashes and bank runs, but there’s a catch: we don’t pay for this “service” in proportion to our deposits (or the interest we earn!). Instead, we help subsidize the regulation and maintenance of the financial system from which the elite depositors benefit disproportionately.

Rich depositors are more likely to invest in instruments and accounts which yield higher interests rates. Plus, they’re more likely to earn a greater amount of their income directly from the interest on their deposits. The barriers to entry in banking prevent individuals from forming their own mutual banks and force them to rely on the aggregated wealth of big depositors at some level of the hierarchical finance establishement. And because the rich can afford to pay for maintenance of their wealth by managers, accountants, and brokers, they are more likely to anticipate and capitalize upon market shifts than us.

Keep in mind that central regulation and maintenance of markets, groomed and rationalized by the Fed, the FDIC, and other departments, encourages the sort of investment patterns that count on steady profits and interest – phenomena much more likely to benefit the wealthy than those of us investing in 401-Ks and IRAs. By lowering risks, any entrepreneurial profit opportunities regulation kills are made up for in the stability of markets and the steadiness of investment income. Of course, that benefits those who’ve already accumulated capital much more than those of us who’ve yet to achieve our fortune.

However, the extent of State intervention to benefit the rich extends beyond finance into the very real area of asset security. The rich depend on the stability and predictability of systems that ensure and protect their title to their property, but again their benefit from these phenomena dwarfs ours. For example, they count on the government keeping a central repository of property titles to justify excluding others. This takes property off the market and thus raises the value of their property. Sure, middle class homeowners are likely to enjoy these phenomena, but the system they pay for doesn’t benefit them to nearly the degree it does the rich. Socializing the costs of kicking people off one’s land necessarily favors those who have more land to guard.

Police patrols of moneyed neighborhoods provide an example of socialized security, where defense and sentry costs are not paid directly by the beneficiaries. Sure, many wealthy types hire security guards, but they’d have to hire many more – and pay much higher insurance premiums – if it were not for public law enforcement defending their property, nor the extensive, expensive, and centralized hierarchy that makes it less likely property will stay stolen and criminals remain at large.

The Entropy of Aggregated Wealth

As I stated earlier, we may find the answer to the problem of persistent wealth imbalances in human nature. Two aspects of that nature are greed and envy. Just as stockholders are always in danger of management and employees siphoning off profits and imperiling the long term viability of the business, rich individuals face similar uncertainties of theft and fraud. Because the lack of a State would force these costs to be internalized within the entity rather than externalized onto the public, it is highly likely that the costs of maintaining these outsized aggregations of wealth would begin to deplete it.

The balance of power between the rich and non-rich is key here. Direct plundering of wealth, though fraud or theft, threatens the rich in a crippling way. It raises their costs directly in proportion to their wealth, either through insurance costs, defense costs, or losses. They have to worry not just about outside threats, but also the threats posed by their servants, employees, and even their family members. Because the wealth is centralized around one individual or one management team, it is near impossible to find any fair way to distribute the responsibilities of stewardship without distributing the wealth itself. Having a lot of stuff becomes more trouble than it’s worth.

Meanwhile, less rich people economize on these costs by banding together with other modest individuals to either hire outside defense (socializing protection on their own, voluntary terms) or by personally organizing to defend property (via institutions such as militias). Because the ratio of person to wealth is relatively greater, there are more interested individuals wiling to play a role in defense and maintenance of property. It’s the distribution of the wealth over more people that necessarily makes that wealth easier to defend. And since everybody has basically the same amount of stuff, nobody has an interest in taking advantage of, nor stealing from, others.

In fact, normal human greed suggests that there will always be an element of society that wishes to steal and cheat others. What the wealthy offer criminals like this in an anarchy is easy targets, because big estates are harder to defend and so invite more opportunities for plunder. Not only that, but its far more likely that wealthy estates will be targeted because its easier to steal a million dollars from the bank, or a vault, than to rob a thousand or so common people. The larger the disparity in wealth, the more intensively the wealthy will be targeted by criminals.

On the other hand, normal people would necessarily be less likely to be targeted by the criminal, for a few reasons. First, since the ratio of human bodies to wealth in a modest community would be much greater, the deterrent effect would be insurmountable to all but the most stupid crooks. Second, the criminal elements in a modest community are more likely to share in the legitimate wealth of the economy, preventing them from preying on their neighbors. Since the economy is completely free, current mentalities about the reasons for criminal behavior are minimized because people see that by working hard they can actually get ahead.

The Free Market as Egalitarian Equalizer

This phenomenon of disadvantaged rich and advantaged poor, brought about by the costs of estate and business management, suggests an interesting dynamic. It may be that in a free market there will exist a natural, mean personal wealth value, beyond which diminishing returns enter quickly, and below which one is extremely disposed towards profit and enrichment. If this is true, then that means that normal, productive, and non-privileged people will tend to have similar estate values. This wide distribution of wealth will tend to reinforce bottom-up society and a balance of power unrivaled in history (except maybe in frontier experiences).

In a stateless society, institutions for business and personal organization must derive their permanence from their usefulness not just to an elite few, but from the respect of the entire community – customers, suppliers, neighbors, etc. An entity that can operate efficiently and deliver a steady stream of income, whether an estate or a corporate business, becomes less viable the larger it grows because internal transaction and maintenance costs start to skyrocket. This is a function not of wealth itself, but rather of the difficulty wealthy individuals experience in convincing others to honor and defend their estate. The more people benefit from a body of wealth, the more people will support it.

Indeed, the State can be seen as a mechanism for acquiring the consent of the governed to sign onto a program of stabilization that is inherently artificial, precisely due to its disproportionate dividends to established elites. Through institutional identity, the State co-opts authentic community support or opposition and channels it into modes that are predictable and stable. But authentic community stability is no harder to realize in a genuine, stateless society where people participate only in voluntary organizations. Similarly, inauthentic, imposed stability usually benefits those who cannot maintain their position without outside help. Wealthy interests use the State as a way to marshal public support without yielding control or spreading the wealth, as it were. It’s a con job.

A truly free market without subsidized security, regulation, and arbitrarion imposes costs on large scale aggregations of assets that quickly deplete them. I do not think they would be able to survive for very long without the State, even if “natural elites” exist or some form of social darwinism is proven correct, because natural hierarchies such as those would not need State intervention to maintain. One can chalk this up to the fickle and often dark side of human nature, but it’s a phenomenon that we cannot just wish away – indeed, we should see a place for these dynamics in the legitimate, bottom up society. It may be that libertarianism, taken to its logical conclusion, is far more egalitarian and redistributionist than we ever dreamed – not as a function of any central State, but rather due to its lack.

A final note: I’d appreciate any feedback on this thesis. I find it difficult to call it my own, as it seems so straight forward that some anarchist or economist should have brought it up before. However, in my (admittedly less than extensive) reading I’ve not encountered the full argument in this form. Also, many thanks to the Attack the System Yahoo! Group for their help in refining these ideas.

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Hey, thanks for the kind words and for keeping this essay up while I was in the middle of a shitty ass data import. The essay is back up, btw. No need for any action on your part – just signaling appreciation.

[…] It is not necessary in the context of what Obo and Bella "accuse" left-libertarians of because if we do not advocate any kind of state or quasi state coercive system for addressing this problem it does not affect the "genuineness" or "purity" of our libertarianism/anarchism. We are not proposing to coerce you out of any of your property. But we may believe, as I do, that a freed market will find ways of addressing the problem without coercion. […]

Hi
Coming from Europe, there´are very big differensens between our histoies, but the point I get of the human natures greedy side and the State being guardian for it, is spot on to me. Here in Denamrk we have a very strong state, and all one sees are average people trying to act like the rich by speculating; wich is , to me, a direct way to a destruction of the state it self; since greed not is a social act.
Sorry for the short reply, but english is not my first nor second language and I need to post your point right away on my blog(in danish)
thanks
Ivan k

“It’s the distribution of the wealth over more people that necessarily makes that wealth easier to defend. And since everybody has basically the same amount of stuff, nobody has an interest in taking advantage of, nor stealing from, others.”

This supposes that wealth is mostly stuff that people have. I think that this is not really true. Large portions of most middle class wealth is their land and their stuff, true. But for the wealthy, this is usually a fairly small portion of their wealth. Most of their wealth is likely title to things which create wealth: investments. So as far as stuff is concerned, shouldn’t the cost of: protecting their stuff with respect to the earnings they make via investments, be proportionally less than someone with more stuff compared to investments? If so, then the cost to protect their stuff should have less of an impact on their wealth than it does on a poorer person.

Your conclusion seems to rely on the premise that wealthy people could not have large investments, just stuff they need to protect. While some of those people exist even today, they tend to not keep their fortunes very long (which is somewhat the consequence you suggest). However, this ignores the fate of those who do live more reasonably and invest more wisely, those who insure that their consumption is less than their savings.

“It’s the distribution of the wealth over more people that necessarily makes that wealth easier to defend. And since everybody has basically the same amount of stuff, nobody has an interest in taking advantage of, nor stealing from, others.”

This seems flawed in other ways too. Are you supposing that having more or less stuff than your neighbor makes you more or less likely to want to steal from them? If you suppose that having more than them makes you less likely to want to steal from them, than why do you assume that the rich try so hard to steal from the poor via state intervention? If it’s the opposite, than why is burglary and petty theft much more prevalent in poorer inner city neighborhoods? I think that reality hints that in neighborhoods with more people and less stuff it is actually harder to protect stuff.

[…] 2. The operation of a freed market. When privileges are absent, capitalization costs are lower, and more people can enter the market. The result is more enthusiastic competition—and, of course, the practical effect of competition is to reduce profit margins and to make it harder for people to preserve entrenched economic positions. Freeing the market is itself an act of revolutionary redistribution, because, as Jeremy Weiland emphasizes, the free market will “eat the rich.” […]

[…] Generally speaking, these are good ideas, though obviously actually getting to a point where we could undo patent law and zoning codes altogether would require a hugely steep uphill political battle. Indeed, many of Gary’s ideas would require enormous political will and resources, so even if they are not government solutions per se they are nonetheless solutions which the government will inevitably be a part of. Indeed, my example – organized labor – would require a political solution as well: repeal of Taft-Hartley and the Wagner Act in particular. All non-state solutions nonetheless require political process – which can make good libertarian policies really hard to actually achieve. 2. The operation of a freed market. When privileges are absent, capitalization costs are lower, and more people can enter the market. The result is more enthusiastic competition—and, of course, the practical effect of competition is to reduce profit margins and to make it harder for people to preserve entrenched economic positions. Freeing the market is itself an act of revolutionary redistribution, because, as Jeremy Weiland emphasizes, the free market will “eat the rich.” […]

“Murray Rothbard’s support of syndicalist takeover of State-supported corporations”

He backed off from that view, and the only reason he argued in favor of such things in the first place was to try and ally with the growing New Left (though he quickly realized the stupidity of the movement and split off from it).

[…] Left-libertarians share with other leftists the conviction that the redistribution of wealth can be appropriate or even required. But they deny that redistribution may reasonable be undertaken to bring about a particular pattern of wealth distribution or that it is properly the work of the state. Rather, they suggest, redistribution ought to be effected by the legal system (as it restores to people resources unjustly taken from them or their predecessors in interest, as it makes assets stolen by the state or acquired unjustly by its cronies available for homesteading, and as it denies validity to state-secured privileges that preserve the economic positions of the well-connected while keeping others poor), through solidaristic mutual aid, and through the tendency of a market liberated from privilege to “eat the rich.” […]

[…] bargaining power over repeated transactions. If the abolition of the state would indeed lead to a “natural, mean personal wealth value, beyond which diminishing returns enter quickly, and belo…, this is an argument for the state, not against it! Inequality of wealth – sometimes vast – is […]

[…] Left-libertarians share with other leftists the conviction that the redistribution of wealth can be appropriate or even required. But they deny that redistribution may reasonably be undertaken to bring about a particular pattern of wealth distribution, that it may be effected through aggressive interference with people’s justly acquired possessions, or that it is properly the work of the state. Rather, they suggest, redistribution ought to be effected by the legal system (as it restores to people resources unjustly taken from them or their predecessors in interest, as it makes assets stolen by the state or acquired unjustly by its cronies available for homesteading, and as it denies validity to state-secured privileges that preserve the economic positions of the well-connected while keeping others poor), through solidaristic mutual aid, and through the tendency of a market liberated from privilege to “eat the rich.” […]

[…] Rather, these gigantic personal estates and corporations are a result of state intervention. In Let the Free Market Eat the Rich, Jeremy Weiland points out some of the ways in which the government socializes the costs of being […]

[…] Rather, these gigantic personal estates and corporations are a result of state intervention. In Let the Free Market Eat the Rich, Jeremy Weiland points out some of the ways in which the government socializes the costs of being […]

[…] issues disappear. One of my favourite pieces in this vein has been Jeremy Weiland’s “Let the Free Market Eat The Rich“. And, like many before me, from Benjamin Tucker, via the Mutualists, to people such as David […]